Economic growth and social productivity in market economies

Economic growth has always been a cultural phenomenon, starting with the European intellectual movements.

Through the Medieval Age the traditional concept of work – economic life and social life as one – sustained in nearly every culture. Though markets were indeed present, there was no market system or economy other than the transfer of countries’ wealth by conquest and vassalage. Profit for profit’s sake was anathema to nearly all societies in both ethos and its literal religious sense; although, Muslim territories had preserved their mercantilistic nature while Europe lost itself in the Dark Ages. However, society also inched toward intellectualism, first seen in the Renaissance, and then a realization and confusion of the nature of itself. Should the kingdom exalt its traders and sell more than it should buy, or should it surely bring in more than it gives away? The sustainability of an entire society is soon called into question, and it then leads to an Age of Enlightenment to discover the mechanism by which all is controlled.

Since that period of intellectual and scientific enlightenment, two economic philosophers Adam Smith and David Ricardo have grounded nations’ livelihoods with a system of capitalistic manipulation. Smith held a general and positive outlook on the economic situation of the time where the budding industrialists and capitalists were seeing major profits. His opus on the fundamentals of modern economics fathered the next generation of individuals, who better understood peeling away from their traditional roles, on whom Ricardo described,

“A capitalist, in seeking profitable employment for his funds, will naturally take into consideration all the advantages which one occupation possesses over another. He may therefore be willing to forego a part of his money profit, in consideration of the security, cleanliness, ease, or any other real or fancied advantage which one employment may possess over another” (On the principles of political economy, and taxation, David Ricardo).

Here began the positive correlation of productivity with market economies. The Enlightenment’s focus on the individual supplied the same focus to the development of capitalism as a freestanding economic system. Smith picked up on this, citing the invisible hand among other low-level programming, and propounded the benefits of individuals’ self-interest in macroeconomics. Capitalism, in its modern sense as an economic system rather than classical economists’ capitalist individuals, is based on self-motivation and a market economy. Making oneself a more socially respected member of society is a, if not the, fundamental motive for economic growth of oneself or family unit.

The next development in motives was the incentive, which everything from governments to companies to student research teams in Georgia Tech Department of Psychology have accepted. First, the body which offers the incentive develops the criteria; for government, buy-in to a national healthcare plan that would yield lower health costs, and for a credit card company, enrollment in a special savings plan that boosts its investment options. These incentives offer a special opportunity, either abstract or material gain, to qualified participants who wish to benefit themselves. In effect, both the body offering the incentive and the participant accepting the benefit are out for their best interest and yet they benefit each other and the collective. Incentives are, in effect, a lubricant for capitalistic systems.

This system, however, is not without flaws, or at least inherent issues with its constituents. That is, a culture based on capitalism for so long as the United States develops a sort of because-we-can morality. While the original merchants subsisted and identified with they produced, the contemporary merchants (now called consumers) identify more with what they purchase. Now that this is an intrinsic part of the world’s leading economy, the association sustains itself and only grows larger. This is the contemporary U.S. capitalist basis – it only grows. The trouble with this economic growth is the damage it contributes to the world stage. Some cultures have come to accept unsustainable practice via their economic level of entitlement. Consider a well-off teenager who has the economic (rich parents) and cultural compunction (driving his buddies around and hanging out) to own a huge SUV. Because he can do this, he will because that makes him happy and he identifies with this SUV he, or at least his family, purchased. This is another way to look at incentives as a sort of unintentional incentive. The teenager’s economic growth is highly dependent on social status, as observed before, simply because teenagers so dearly want to be more interesting and have more friends than the next guy. By purchasing this incentive of a gaudy SUV he is improving his status, no matter the cost to the source of the resources to manufacture it.

Incentives, both intended and unintended, have pervaded capitalist systems by nature of self-interest and incidental effect on the collective. However, while the Enlightenment did touch off the race of capitalists, there are those that do not ride the system to riches; rather, those who labored as wage workers have not seen the macroeconomic change capitalists have. Governments, too, failed to see the benefits of individualism and capitalist-driven industrialization.

While Russia did see an appreciable effect of the Enlightenment, contributing to the natural sciences and arts was not met with economic philosophy and improvement. While the czars, rather than collective governments like those to the west, still had a major influence on Western society, their domestic policy was still mired in serfdom and poor public policy. The absence of a collective frustrated the public, and the empire saw increasing manifestations of this in the next century. Following the revolutions of 1917, the formation of a government more purely collective than those of Europe and America formed. The people of Russia discovered and visited all the individual waypoints on the route to fully arranging their economy, rather than it arranging itself by individuals’ actions and comparatively less interaction via government, and they still failed satisfying the social productivity that they so desired. Efforts elsewhere in collectivism for that period resulted in failure or Pyrrhic victory, like the Soviet five-year plans and China’s Great Leap Forward.

While these command economies have improved, albeit at the expense of its citizens, the sustainability is more poignantly displayed in their turmoil. Russia encounters violent territorial conflicts, China faces population and welfare issues, and Vietnam heavily restricts human rights and politics. Of course, even capitalist countries encounter similar issues, but they are not as entirely the result of the system like in command economies. The issue of economic sustainability is largely on the docket of the people in market economies. One generation may see a major downturn, like the 80s and current recessions, and make a concerted effort to identify and improve what failed. This cultural phenomenon is singular to economies where the individual has as much control as the collective. One identification we have made is the long-run of resource procurement and management – in a word, environmental sustainability. Since the last recession, compounded by environmental issues like the oil crisis and pollution, people identified life cycles of products and product stewardship. Governments have established certification boards for environmental responsibility and enacted laws and incentives for comprehensive recycling, like Germany’s “takeback” law.

This cultural shift has also introduced a sense of social responsibilities for businesses. Such a feat is often not in the best interest, rather it should first acknowledge and carry out its duties to their primary responsibility: the shareholders, as defined by the shareholder theory (or theories, according to Donaldson and Preston’s research). However, a firm could venture into the social and environmental sustainability areas should it be profitable, either immediately or in the future via investment in certain markets. Porter and Linde’s peper “Green and Competitive” asserts that the stalemate could be overcome should more companies take the time to research their options and use any leftover capital to invest in sustainable practice so both their primary investors and creditors be satisfied and potentially improve their company and their user base by this investment. When an economy has this ability to both self-regulate and have government intervention for the sake of introducing more participation via regulation and incentive, it may thrive.

Peoples who have consented to a free market system have historically seen optimal economic growth compared to those in command economies. The individuals in control enable a high rate of social productivity, which in turn allows a well-networked collective. Business uses this in terms of social capital which may be used to sell, advertise, and invest, and that in turn is contributing to improved productivity in society and the economy. These networks, however, are confined to national borders. Countries that do not or are unable to interface with well-networked countries with a market economy face problems. For example, Thailand may allow an American company to build a factory in a zone that requires mass employment, but because of poor interface and restrictions, the conditions and pay for the workers may be horrendous. Modernization may be the key to mitigating this problem; however, modernism is inherently contradictory at this point. That is, the people who do their best to preserve their environment and cultures must use resources that do just the opposite in order to survive and continue modernizing and improving their culture and standard of living.

Some countries, however, have resisted modernization despite nominal capability, because of sociocultural climate like Afghanistan or a poorly formed union like North Korea and Myanmar. Myanmar, for example, is one of the most entrenched and yet inefficient governments in effect. Its greatest problem is resource management, keeping the resource-loaded and agrarian nation under pressure via the junta and its reckless fiscal and monetary policy, poor data collection, and minimal foreign investment. These countries could actually benefit from an eventual globalized economic system.

Corrupt governments may contribute to hyperinflation or poor distribution of wealth, whereas healthier governments look out more for citizens. From this we could derive ideas for globalism, in that if there were more healthy governments, or elimination of poor governments and the people were absorbed into healthy governments, then economic growth would be more efficient. Naturally, a corrupt government is most often the most inflexible and hostile government and would not accept a sort of takeover like a global government. Instead of takeover mentality, however, global governance should be the key. This practice makes nations’ borders less a cell wall and more a cell membrane, allowing information and guidance to pass through to each other more effectively. Another purpose of globalization is preventing exploitation of resources via technological advancement, and thus sustainability in resource procurement and management.

Productivity correlates positively with market economies, especially capitalistic systems. However, not all communities involved heavily in the Enlightenment invested in these capitalistic economies, even if they have historically been mercantilistic economies, and have met mixed success compared to those that did. This trend is largely a consequence of differences between the individual and the collective; that is, the sociocultural climate and the government. Therefore, for optimal economic growth and a more sustainable plan, both the individual and the collective must consent to a free market system and perhaps an eventually globalized economy.

To what extent is the modern project of economic growth a cultural phenomenon, tied to the ideals of Western Enlightenment? Is it possible to decouple the individual as well as collective social productivity of enlightenment from the material and economic productivity of capitalism? Why or why not?


2 thoughts on “Economic growth and social productivity in market economies

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